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Louisiana’s Next Big Industry Could Be Making Gasoline From Natural Gas

Louisiana’s Next Big Industry Could Be Making Gasoline From Natural Gas
September 27
10:35 2012

There’s an interesting piece of business news in the Baton Rouge Advocate today…

Sites in St. James and Ascension parishes are being eyed for a “large” but mysterious industrial project that some officials have described as being bigger than the $3.4 billion Nucor Corp. steel mill being built in Romeville, St. James Parish officials said.

A county in Texas is also being looked at for the project that appears to be tied to the energy sector and is trying to take advantage of Mississippi River access and low natural gas prices due to advances in shale exploration, parish officials said. Multiple sites on the east and west banks of St. James were being considered.

Dubbed Project Frontier, the prospective facility was mentioned as part of a broader discussion on local tax incentives during a closed gathering of representatives of major St. James Parish taxing jurisdictions about a month ago at the Parish Courthouse in Convent, St. James Parish officials said.

The meeting was an attempt to have all the taxing jurisdictions at the table on possible future incentives for major projects to avoid the issues that arose over local tax incentives for Nucor.

St. James Parish President Timmy Roussel said the officials had gathered to discuss “what we can live with and what we can’t live with and we needed all of the stakeholders’ opinions.”

He said no precise conclusions were reached then on incentives and any offers would first be brought into public view and have to get required approvals by the Parish Council and the School Board.

Roussel said he could offer few details on Project Frontier at this time, such as what company is behind it, because he has signed a non-disclosure agreement.

We think we know what this is, because we reported on it a few months ago

As such, the word is Shell is going to build a new GTL facility, on par with the size of Pearl, in America so as to take advantage of the more localized demand. And the word is within three to six months, Shell expects to announce a decision on a site somewhere on the Gulf Coast. And Louisiana, with its plentiful supplies of “dry gas” coming out of the Haynesville Shale and its world-class natural gas infrastructure, could very well win out as the domicile for the facility. Within 18 months of the site selection Shell expects to finalize its construction plans, and it’s expected that four years later a GTL facility which employs some 10,000-12,000 permanent workers will go on line.

Considering that it’s been 40 years since a new refinery has been built in the United States, this could be a colossal piece of news for the region. It’s also a significant piece of news for the natural gas industry – because Shell anticipates its American facility will take in some 1.3 billion cubic feet of natural gas per day, and that could be enough to move the price of natural gas upward. Which is good news for landowners in places like the Haynesville Shale, who are disappointed to see wells shut in thanks to the current poor prices for gas.

Shell’s plans could provide another outlet for America’s shale gas revolution, a significant boost to America’s refining capacity, a boon for the construction industry in the Gulf Coast region and a game-changing job creation engine for the community its facility ultimately is sited in.

The Shell GTL project – GTL stands for “gas-to-liquids,” which is a multi-stage refinery process which turns natural gas into kerosene for jet fuel, naptha for gasoline, a super-high-grade diesel fuel and some outstanding industrial lubricants – could be as much as a $16 BILLION project. That’s what Shell’s GTL facility in Qatar costs; that facility puts out 140,000 barrels a day of liquid fuels. By comparison, ExxonMobil’s refinery in Baton Rouge has a capacity of 502,000 barrels per day and the Chalmette refinery jointly owned by Exxon and PVDSA puts out 192,000 barrels per day. Phillips 66’s Belle Chasse refinery is a 247,000 bpd facility and Marathon’s Garyville refinery puts out 464,000 bpd.

For comparison’s sake, that massive refinery expansion Marathon finished in Garyville in 2010 was a $5.3 billion project, which was the high-water mark of industrial construction projects in recent Louisiana history. This would be three times as big. It would be also more than three times as large as the $5.2 billion Panama Canal expansion.

And Shell’s GTL project isn’t the only one set to get rolling in Louisiana. It turns out that Sasol, the South African company which has a long pedigree in turning feedstock other than crude oil into transportation fuel (Sasol’s original core business was to turn coal into automotive fuels and rapidly expanded to natural gas as well), is in the game for a Louisiana facility. From the company’s website

In North America, the shale gas phenomenon presents exciting opportunities for GTL. As improved technology practices continue to drive down the cost of extracting shale, the price differential between natural gas and oil has widened considerably.

GTL is able to take advantage of this differential by producing oil equivalent fuels from a natural gas feedstock that unlock the full value of natural gas. Sasol is actively looking at the feasibility of establishing GTL project opportunities in Louisiana in the USA and Alberta in Canada through projects that will continue to contribute to energy security and economic growth.

Interestingly enough, both Shell and Sasol operate GTL facilities in Qatar at present. Sasol also has current or future GTL facilities in Nigeria, South Africa and Uzbekistan.

And Sasol, which announced plans for a GTL facility a year ago – it’ll be built next door to its current chemical plant in Calcasieu Parish – is now talking about that facility being a $15 billion project. Construction is planned to move forward in January.

Which means that between Shell and Sasol, it’s entirely possible that Louisiana will be looking at over $30 billion in industrial construction projects to create two new refineries producing perhaps as much as 250,000 barrels per day of liquid transportation fuels and more than 20,000 permanent jobs (with three times as many jobs, or more, being indirectly created).

And Louisiana, which has natural gas resources so rich that virtually no corner of the state isn’t at least potentially involved in producing it, would then become the spearhead of American energy independence.

There are obstacles, of course. You can bet that the environmentalists will fight both of these two projects tooth and nail, and should the current president gain re-election it’s quite possible that the plans currently being bandied about would die on the vine.

But it’s clear that the market won’t tolerate a valuable fuel like natural gas being priced so low that production is shut in – not with gasoline prices at record highs and crude oil prices making America’s enemies rich. That level of disparity isn’t sustainable and won’t continue. The production at GTL plants like the ones Shell and Sasol contemplate is the bridge.

And that production looks like it could be centered in Louisiana.

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8 Comments

  1. Kermit Hoffpauir
    Kermit Hoffpauir September 27, 17:57

    Just for the sake of clarity refinery capacities are based on the crude unit capacity alone not the output. A GTL plant is based on output and from my understanding it is mostly naphtha which is then fractionated into almost all gasoline, diesel and kerosene (jet fuel). A GTL plant could easily sell its product to a nearby refinery (like Motiva in Convent) rather than building a refinery alongside it.

    Wet gas production would not matter that much since the "wet" part of it is removed before getting into a major pipeline. Economically it matters because "dry" gas has less btu value and is cheaper at the wellhead.

    Note that Shell Chemical owns an 80,000 bpd refinery in St. Rose, LA which was purchased to provide naphtha to its olefins cracker (making ethylene & propylene) at Norco. With mucho NGLs (the wet part of wet gas) at low prices on the market the refinery was idled for a major reconfiguration as it was no longer needed by Norco. If I am not mistaken a hydrocracker is/was added to it.

  2. Kermit Hoffpauir
    Kermit Hoffpauir September 27, 18:17

    This would be a huge deal.

    • Sina Zarei
      Sina Zarei November 05, 17:06

      Kermit & Michael,

      I'm heavily involved with Norco & St. Rose. St. Rose's is sole purpose for the upcoming recommissioning is to make asphalt. So it will simply be a distilling unit. No hydrocraker was built.

      The olefin units get their NGL feed from Valero, Marathon, and from the onsite refining resources.

    • Kermit Hoffpauir
      Kermit Hoffpauir November 05, 20:28

      Sina, that clarifies what the upgrades at St. Rose are. So, instead of only a crude unit (topping plant) it will be a crude unit with addition of an asphalt plant?

      Previously (a decade ago) Yabucoa, St. Rose and Saraland were all owned by Shell Chemical for naphtha production which is why Shell Chemical had purchased them, rather than Shell Oil or Motiva (3 separate companies). Plus, Yabuacoa had a nice little base oil plant shipping them to the East Coast for lube oil.

  3. Anthony Emmons
    Anthony Emmons September 27, 18:57

    Thank you Scott for bringing this to light. In Qatar there is a natural gas to diesel refinery which is extremely profitable. Shell owns that refinery and I am excited to have these high paying jobs coming to our state so that our children don't have to move to other states in order to get a high paying job. Please look around refineries and note the number of service companies and suppliers who open near their facilities. Thanks again as this is a win-win for our state: more tax revenue, more jobs, increasing the consumption of nat gas (wh/ will hopefully assist in raising the price a little higher to promote more exploration).

  4. Kermit Hoffpauir
    Kermit Hoffpauir September 28, 01:57

    Here is a financial assessment from 2011 published in Platts. Shell already supplies all of its worldwide base oils for lubricants needs with Pearl. That being said, Sasol is making money on its GTL plant in Qatar and wants to expand. Notice that the products are not really diesel or kerosene (jet fuel) and there was no mention of base oil for lube (high grade synthetic lube). In Qatar, there also aren't hidden costs (the Morris Bart factor) which caused Shell to get completely out of the plastics manufacturing in the U.S. and make them in Singapore and Europe instead.

    http://blogs.platts.com/2011/06/17/pearls_gas-to-l/#comments

  5. Michael Hynson
    Michael Hynson September 28, 22:52

    Kermit:

    Which part is used to make gasoline, kerosene, and diesel? If NGLs can be used it seems to make sense to keep St. Rose open so I'm assuming that's not what they use. Would this also affect the production of gasoline, etc. with natural gas in similar manner?

    But regardless, it seems like low prices would be good since they can make more for the same price. Why would they shut it down? Low prices mdes a glut on the market so no more profit? I apparently don't understand where you are going with that part.

  6. Joseph Green
    Joseph Green September 29, 13:15

    It is past time for this to take place!

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